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Procuring Cause. Hey! That s MY Client! Procuring Cause Pitfalls & How to Avoid Them. What is Procuring Cause?

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(1)

Procuring

 

Cause

Hey!

  

That’s

 

MY

 

Client!

Procuring

 

Cause

 

Pitfalls

 

&

 

How

 

to

 

Avoid

 

Them

What

 

is

 

Procuring

 

Cause?

According to the National Association of 

REALTORS®  procuring cause is: 

“the

 

uninterrupted

 

series

 

of

 

causal

 

events

 

that

 

leads

 

to

 

a

 

successful

 

transaction.”

(2)

What

 

does

 

that

 

mean?

Ultimately,

 

Procuring

 

Cause

 

is

 

a

 

“FACT

 

based”

 

analysis

 

of

 

the

 

specific

 

events

 

in

 

a

 

transaction

 

to

 

determine

 

who

 

should

 

be

 

paid

 

a

 

commission.

The

 

are

 

no

 

definitive

 

“rules.”

  

Only

 

“guidelines”

 

to

 

follow

 

based

 

on

 

the

 

facts.

   

Article

 

17

 

– NAR

 

Code

 

of

 

Ethics

Many

 

procuring

 

cause

 

disputes

 

are

 

arbitrable pursuant

 

to

 

the

 

REALTOR

 

Code

 

of

 

Ethics.

These include:

Disputes between REALTORS®

Disputes between agent members of REALTOR® 

owned MLS

Disputes between REALTORS® and consenting 

(3)

Time

 

Frames/Statute

 

of

 

Limitations

NAR/Arbitration

 

=

 

180

 

days

 

from

 

Closing

 

of

 

transaction

 

or

 

day

 

complainant

 

knew

 

or

 

reasonably

 

should

 

have

 

know

 

of

 

dispute.

State

 

Law/Statute

 

of

 

Limitations

 

=

 

varies

Procuring

 

Cause

 

“Guidelines”

NAR provides guidelines for 

arbitrators hearing procuring cause 

complaints to consider as they 

perform their analysis of the FACTS 

involved in a dispute between 

eligible parties.

What

 

are

 

some

 

of

 

the

 

facts

 

that

 

(4)

Guidelines

• When and How were the parties first introduced 

and Who introduced them?

• Was there an offer of compensation made through 

MLS or other writing?

• Were there any other written agreements between 

the parties (agency, exclusive)?

• Was there an “uninterrupted series of events”  that 

lead to the sale?  If not, how/why was it 

interrupted and for how long?  

• Was there conduct by the broker that could 

reasonably be construed as abandonment or 

neglect of the party?

Guidelines

 

(continued)

• Was the entry of a new broker into the transaction a 

violation of any written agreements between the Parties?

• Was the parties decision to enter into a transaction the 

result of broker’s effort or information?

• Is there evidence of bad faith on behalf of any of the 

parties (brokers, buyer, seller, etc.)?

• Did the new broker initiate a separate, independent 

series of events that ultimately lead to a successful 

transaction?

LONG LIST!  But only a handful of the types of 

questions an arbitrator might have as they analyze 

(5)

Fact

 

Pattern

 

#1

Listing Broker placed a listing in the MLS 

and offered compensation to buyer 

agents. Buyer Broker #1 showed the 

property to Buyer on Sunday and again 

on Tuesday. On Wednesday, Buyer Broker 

#2 wrote an offer to purchase on behalf of 

Buyer which was presented to the Seller 

by Listing Broker and which was accepted 

by Seller. At closing, a commission is paid 

to Buyer Broker #2. 

Fact

 

Pattern

 

#1

 

Claims

Under NAR rules, Buyer Broker #1 could 

bring a claim against Buyer Broker #2 

(NAR Standards of Practice 17‐4) OR 

against Listing Broker, who had promised 

to compensate the procuring cause of sale 

via the MLS listing.

Assuming that all brokers are REALTORS, 

(6)

Fact

 

Pattern

 

#1

 

Claims

 

(continued)

Under state law, Buyer Broker #1 MAY 

be able to bring a claim against Buyer IF 

the Buyer and Buyer Broker #1 were 

parties to a written agreement (Exclusive 

Right to Buy) OR, if no written 

agreement, is there evidence of some 

other form of agreement.

Fact

 

Pattern

 

#1

 

Analysis

 

(NAR)

In an arbitration hearing brought under NAR, the Hearing Panel will consider, among other things, why Buyer made the offer to purchase through Broker #2 instead of Broker #1. If it is determined that Broker #2 initiated a series of events which were unbroken in their continuity and which resulted in the sale, Broker #2 will likely prevail.

(7)

Fact

 

Pattern

 

#1

 

Analysis

(Contract

 

Law)

• What was relationship between Broker #1 and 

Broker #2?

• Why did Buyer switch brokers?

• Did Buyer’s needs change between Tuesday & 

Wednesday?

• Did Buyer Broker #1 do anything other than 

show the property?

• Did Buyer have prior knowledge of the 

property?

Fact

 

Pattern

 

#2

Listing Broker placed a listing in the MLS 

and made an offer of compensation to 

buyer agents. Buyer Broker #1 showed the 

property to Buyer, who appeared 

uninterested. Buyer Broker #1 made no 

effort to further contact Buyer. Six weeks 

later, Buyer Broker #2 wrote an offer on 

the property on behalf of Buyer, 

presented it to Listing Broker, and it was 

(8)

Fact

 

Pattern

 

#2

 

Claims

Similar to the first fact pattern, Buyer 

Broker #1 could likely file an arbitrable claim under NAR Code of Ethics against 

either Listing Broker OR Buyer Broker #2. Ideally, Listing Broker and Buyer Broker #2 

should be joined in the claim so that any 

competing claims can be resolved in same 

hearing. 

Fact

 

Pattern

 

#2

 

Analysis

(NAR)

In Fact Pattern #2, the Hearing Panel will 

likely be considering the length of time 

without contact from Buyer Broker #1 that 

transpired.  Six weeks is a long period that, 

absent additional facts, would likely 

constitute abandonment of the Buyer by 

Buyer Broker #1.  Also, it may be easier for 

panel to determine that Buyer Broker #2 

initiated a second, separate series of events 

(9)

Fact

 

Pattern

 

#2

 

Analysis

 

(Contract

 

Law)

• Did the Buyer execute an agreement with 

Buyer Broker #1?

• Did the Buyer terminate the relationship 

with Buyer Broker #1?

• Did the Buyer’s needs change during the 

six week period?

• Did Buyer Broker #1 make any attempts to 

contact Buyer during six‐week period?

Fact

 

Pattern

 

#3

Listing Broker placed a listing in the MLS 

and offered compensation to buyer agents. 

Broker Z, not a participant in the MLS, 

called to arrange an appointment to show 

the property to a prospective purchaser. 

There was no discussion of compensation. 

Broker Z presented Listing Broker with a 

signed purchase agreement, which was 

(10)

Fact

 

Pattern

 

#3

 

Claims

(NAR)

Broker Z was the procuring cause of sale, 

BUT Listing Broker’s offer of compensation 

was made only to members of the MLS. 

Listing Broker never offered cooperation and 

compensation to Broker Z, nor did Broker Z 

request compensation at any time prior to 

instituting the arbitration request. There was 

no contractual relationship between them, 

and therefore no issue to arbitrate.

Fact

 

Pattern

 

#3

 

Analysis

(Contract

 

Law)

• Did Broker Z have an agency agreement 

with the Buyer?

• If so, what did the agency agreement state 

about compensation?

• Under the circumstances, what would 

Listing Broker have paid a participant in 

(11)

Fact

 

Pattern

 

#4

Buyer Broker has had a long‐standing relationship with Buyer, the real estate manager of a large, diversified company. Buyer Broker has acquired or disposed of 12 properties for Client over a 5 year period. Buyer asks Buyer Broker to locate a large warehouse property to consolidate inventories from three local plants. Buyer Broker conducts a careful evaluation of the operational and logistical needs of the plants, prepares a report of his findings for Buyer, and identifies 4 possible properties that seem to meet most of Buyer’s needs. At Buyer’s request, he arranges and conducts inspections of each of these properties with several operations level individuals. Two of the properties were listed for sale exclusively by Listing Broker. After the inspections, Buyer Broker sends Listing Broker a written registration letter in which he identifies Buyer’s company and outlines his expectation to be paid half of any commission that might arise from a transaction on either of the properties. Listing Broker responds with a written denial of registration, but agrees to share any commission that results from a transaction procured by Buyer Broker on either of the 2 properties. Six weeks after the inspections, Buyer selects one of the properties and instructs Buyer Broker to initiate negotiations with Listing Broker. After several weeks the negotiations reach an impasse. Two weeks later, Buyer Broker learns that Listing Broker has presented a proposal directly to Buyer for the other property that was previously inspected.

Buyer Broker contacts Listing  Broker, 

and demands to be included in the 

negotiations. Listing Broker refuses, 

telling Buyer Broker that he has “lost 

control of his prospect,” and will not be 

recognized if a transaction takes place on 

the second property. The negotiations 

proceed, ultimately resulting in a sale of 

the second property.

(12)

Fact

 

Pattern

 

#4

 

Claims

(NAR)

Despite the fact that no MLS is involved, 

Buyer Broker may still submit an 

arbitration claim against Listing Broker 

based on the fact that a writing DID exist 

between the parties.

The claim would be arbitrable. 

Fact

 

Pattern

 

#4

 

Claims

 

(Contract

 

Law)

Courts

 

will

 

typically

 

award

 

a

 

commission

 

to

 

a

 

broker

 

that

 

is

 

frozen

 

out

 

of

 

a

 

sale

 

by

 

another

 

broker

 

to

 

avoid

 

paying

 

a

 

(13)

Fact

 

Pattern

 

#4

 

Analysis

 

(NAR)

The Hearing Panel will consider Buyer Broker’s 

introduction of the property to Buyer, the 

property reports prepared by Buyer Broker, the 

time between the impasse in negotiations on the 

first property and the sale of the second property, 

and the Buyer’s reasons for excluding Buyer 

Broker from the sale of the second property.   If the Hearing Panel determines that Buyer 

Broker initiated the series of events that led to the  successful sale, Buyer Broker will likely prevail.

Fact

 

Pattern

 

#4

 

Analysis

 

(Contract

 

Law)

• Was there any difference between the commissions 

for the first and second properties?

• Did the price for the second property change? • Did Buyer’s needs change during the two‐week 

period?

• Did the Buyer and Buyer’s Broker have an 

agreement for compensation?

• Did an agreement between Buyer and Buyer’s 

(14)

Five

 

Tips

 

to

 

Avoid

 

Litigation

1. Don’t let your license expire, and make sure  that you have a written agency agreement 2. Introducing a buyer to a property is almost 

never enough

3. If you have to talk about indemnification, a  suit is likely

4. Even with a significant passage of time, a  commission may be owed

5. Act in good faith, your conduct may be  judged

David M. “Merc” Pittinos, Esq.

Burns, Figa & Will, P.C.

6400 S. Fiddler’s Green Circle, Suite 1000

Greenwood Village, CO 80111

Telephone: 303‐796‐2626

E‐mail: mpittinos@bfwlaw.com

www.bfwlaw.com

Scott A. Peterson, General Counsel

Colorado Association of REALTORS®

309 Inverness Way South

Englewood, CO 80112

Telephone: 303‐790‐7099

Email:  speterson@coloradorealtors.com

References

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